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District Court of Appeal, Fourth District, California.

ELSINORE UNION ELEMENTARY SCHOOL DISTRICT OF RIVERSIDE COUNTY, Plaintiff and Respondent, v. E. J. KASTORFF and the Seaboard Surety Company, a corporation, Defendants and Appellants.

Civ. 5999.

Decided: November 24, 1959

Wallace & Wallace, by W. W. Wallace and A. W. Wallace, Los Angeles, for appellants. Ray T. Sullivan, Jr., County Counsel, and James H. Angell, Asst. County Counsel, Riverside, for respondent.

In 1952, the plaintiff and respondent school district determined to make additions to its school buildings. Accordingly, plans and specifications were prepared and notice was published soliciting bids from contractors, to be opened on August 12, 1952. The defendant Kastorff is a building contractor. He prepared and filed his bid in the amount of $89,994. He also filed, as required by the advertisement and the instructions to bidders, a bond with defendant surety company, as surety, in the amount of 5 per cent of the bid, to guarantee that he would enter into the contract for the construction if the bid was accepted. At the opening of the bids defendant's bid was the lowest bid by some $11,000, and the contract was awarded to him. Subsequently, however, he refused, on demand, to enter into the building contract. Thereupon, the district readvertised for bids and eventually let the contract to the lowest bidder as a result thereof, which contract was in the amount of $102,900. This action followed. The school district sought to recover as damages the amount of $12,906, the difference between defendant's bid and the amount of the ultimate contract, and sought to recover as against the surety company in the amount of its bond. A judgment was entered as prayed for, the judgment running against the contractor and the surety company in the amount of $4,499.60 and against the contractor alone in the sum of $8,406.40. Both defendants appeal.

It is strenuously contended that the evidence does not support the findings of the trial court. We have therefore carefully examined the record. Although there are certain findings which are subject to some criticism, nevertheless the essential facts, as found by the trial court, are established by the undisputed evidence. From these facts the correct result follows as a matter of law.

The defendant contractor, as is usual, obtained estimates from subcontractors which were used in connection with making up his final bid. In making up his final bid, however, he neglected to include the figures for plumbing and heating, with the result that his actual bid was less than it would have been if correctly figured. He was present at the meeting when the bids were opened and the difference between his bid and those of his competitors was sufficiently large to excite comment by the members of the board. They questioned him as to whether he was sure of his figures, one member asking him somewhat facetiously if he had foregotten to include the cost of the roof. He asked for an opportunity to consult with his wife who had assisted him in the preparation of the bid and retired from the room. Some half hour later he advised the board that his figures were correct, and that the bid was proper. Accordingly, the bid was accepted. The following morning he discovered his mistake. He communicated with the architect and a special meeting of the board was called, at which the matter was discussed and the board was informed that he had made the error and that he asked to be relieved. However, the board caused the preparation of the contract in accordance with the bid and mailed the same to defendant with the request that he execute it. This he refused to do.

Appellants challenge the sufficiency of the evidence to justify the finding that the board was not aware of the error made by defendant. We believe that there is ample support in the evidence for the finding and conclusion of the trial court in this regard. It is true that the attention of the members of the board was called to the marked difference in the bids of the various contractors but upon making specific inquiry and being assured by defendant that his bid was correct, they were entitled to conclude that there was no error in the making of the bid. The evidence supports the conclusion of the trial court that the board acted in good faith in accepting the bid.

Appellant challenged finding XVIII, which recites that ‘It is not true that the plaintiff knew at the time it requested the execution of the contract by defendant Kastorff that he had withdrawn his bid because of an honest error in the compilation thereof.’ The correctness of this finding is questionable, but it is of doubtful materiality. At the time of the acceptance of the bid it is fair to conclude that the board did not know defendant had made the error. At the time execution of the contract was requested the board did know of the existence of the error. The finding is, however, that the board did not know plaintiff had ‘withdrawn his bid.’ The fact is that, legally speaking, defendant did not withdraw his bid for the reason that after the bid was accepted it could not be withdrawn. The evidence amply establishes that only after acceptance of the bid was the error explained to the board and defendant asked to be relieved. However, the matter has no materiality.

The court found that the defendant made an honest mistake in figuring the amount of his bid. The appellant also challenges the propriety of the finding that the defendant intended to submit a bid in the amount in question. The court found that the allegations in this regard were not true. This finding is, strictly speaking correct. The defendant did intend to submit a bid in that amount and when his attention was called to the matter he assured the board that his bid was correct. The fact was that he was mistaken in believing that a bid in that amount was correct.

However, the fact remains that the bid was accepted. The fact that an error was made and subsequently discovered does not relieve the defendant of liability for refusing to enter into the contract in the absence of any proof that the public body or its members knew that the amount of the bid was the result of error. The law governing situations of his character has been discussed in detail by the Supreme Court of California in M. F. Kemper Construction Company v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7, and Lemoge Electric v. County of San Mateo, 46 Cal.2d 659, 297 P.2d 638. The rule is laid down that where the bids have once been opened and a bid has been regularly accepted, such bid on a municipal public improvement is in the nature of an irrevocable option and that the public body has a contractual right of which it cannot be deprived unless there exists the requirements for a rescission. It is held that if it be established that as the result of honest mistake, a bid was submitted in the wrong amount and that the governing body was aware that such mistake had been made, then, on the ground of mutual mistake, the contractor should be relieved from liability. Obviously, however, although a unilateral mistake would justify the contractor in withdrawing his bid before it was accepted, it would furnish no ground for rescission in the absence of knowledge of the mistake on the part of the public body or of proof of mutual mistake. The knowledge that a mistake had been made by the other party is equivalent under Civil Code, § 1689 to mutual mistake. See the authorities cited in the two cases referred to and 41 Cal.Jur.2d 410.

Under the established law in this state, therefore, it must be held that upon the acceptance of the bid and a refusal by the contractor to enter into the construction contract, the school board was entitled to maintain action against the contractor and his surety upon the bid bond.

The important question involved herein is the remedy to which the school district is entitled. It was the contention of the plaintiff and respondent, and apparently the conclusion of the trial court, that the plaintiff was entitled to recover as damages the difference between the bid that was ultimately accepted and the defendant's bid. Accordingly, judgment was entered for the full amount of this difference and judgment on the bond to the extent of the penal amount thereof. Apparently it was the theory that the correct measure of damages was the difference between the first bid accepted and the ultimate bid on the contract entered into with another contractor, and that the purpose of the bond was to secure the payment of that damage to the extent of the bond.

The error in this contention arises from a failure to distinguish between the damages arising from a breach of a construction contract and those damages recoverable from a failure to comply with the obligation to enter into such a contract. Two decided California cases make this distinction plain. In Gentral Contra Costa Sanitary District v. National Surety Corporation, 112 Cal.App.2d 61, 246 P.2d 150, the difference between the cause of action for breach of a contract and the cause of action for failing to enter into a contract was carefully explained. In that case the bid of a contractor was accepted. A contract was prepared but before the contractor could execute it he died as the result of a sudden attack. Action was brought. It was pointed out that the bond was a part and parcel of the proceedings preliminary to the execution of the contract, and that upon the completion of the contract, it had no further purpose. Such bond is given as a guarantee that if the bid is accepted the contract will be executed and it has nothing to do with any breach of a building contract. It was held that where, by reason of the death of the contractor, it became an impossibility to enter into the contract, no liability existed.

In Palo and Dodini v. City of Oakland, 79 Cal.App.2d 739, 180 P.2d 764, the status of a bid bond was under consideration. The question was raised as to whether it was to be considered as a forfeiture rather than a stipulation for liquidated damages, and, if the latter, whether it was a valid one under the California law. Various cases from other jurisdictions were considered, in some of which it was ruled that by the acceptance of the bid the parties would be considered as having entered into a construction contract even though such contract be not executed. These decisions were rejected by the court, maintaining the difference between the forfeiture of the deposit or bid bond posted as a guarantee that the contract would be executed, and the damages for a breach of an executed contract. It was held that such bond or deposit constituted an agreement for liquidated damages and as such was enforceable. It was held that this conclusion was based in part upon the fact that it was a guarantee to a public body, and also upon the fact that the actual damages occasioned by a failure to execute a building contract after the bid was accepted were difficult to ascertian. The court stated, 79 Cal.App.2d at page 750, 180 P.2d at page 771:

‘It would be very difficult to fix the money value of the city's loss. Among the factors involved are the following: First, of course, would be the cost of readvertising (and even this amount plaintiffs have not offered to pay); secondly, there would be the delay in getting a new contract; thirdly, the lower returns the city would probably receive under a new contract, now that the highest bidder had been eliminated; fourthly, the fact that possibly in view of their experience at the first bidding, the other bidders would not bid at all.’

The respondent, in its brief, relies upon certain language in the bid bond as being an agreement as to the measure of damages. This language is to the effect that it guarantees payment of the difference between the amount of the bid and the amount of another contract in case the building contract be not executed. It is to be noted, however, that in the notice published, inviting bids from contractors, it is provided that the bid shall be accompanied by a certified or cashier's check or bid bond for 5 per cent of the amount of the bid made, as a guarantee that the bidder will enter into the contract if awarded to him, and will be declared forfeited if the successful bidder refuses to enter into the contract after being requested to do so by the awarding authority. The same provisions are contained in the instructions to bidders which were furnished to the contractors. The same language is also contained in the form of proposal which was furnished to the contractors to use in submitting their bids. That form of proposal was used by defendant contractor and it contains the same language. It is plain, therefore, that it was the agreement of the board and the contractor that the bond was furnished as a guarantee of the execution of the building contract if the bid was accepted, and was to be forfeited in case of failure to execute the same. A bond must be construed with the contract or the statute in connection with which it is given. 8 Cal.Jur.2d 619. It follows, therefore, that in determining any possible conflict between the language used in the bond and the language of the contract which requires a bond, that of the contract must govern. It is also the rule that the penal sum named in the bond measures the extent of the liability on the bond or undertaking. 8 Cal.Jur.2d 638.

The party seeking damages must recover upon one rule of the other and must confine its measure of damages to that applicable to the cause of action to be enforced. Bowman v. Maryland Casualty Co., 88 Cal.App. 481, 263 P. 826. It must be held, therefore, that the provision for the filing of a deposit or bid bond in the amount of 5 per cent of the bid and the filing thereof constituted an agreement between the parties whereby the damages to be awarded were liquidated. The bond was for the purpose of guaranteeing the performance of the obligation to execute the contract, and the bondsman and the principal were liable in the amount of the bond upon failure to execute the same. Additional damages could not, therefore, be recovered.

It is ordered that the judgment be modified by striking from the findings and conclusions and from the judgment those provisions for a judgment against defendant E. J. Kastorff alone in the amount of $8,406.40, and as so modified, the judgment is affirmed.

MONROE, Justice pro tem.

GRIFFIN, P. J., and SHEPARD, J., concur.